Preferred shares don’t rank as high in investor consciousness as their common counterparts. But people should be aware that these securities offer a dependable cash flow. Preferred shares generally pay a fixed dividend, which means the payout qualifies under the Dividend Tax Credit, giving preferential tax rates. Investors can also access the preferred share market through Exchange Traded Funds. Doug Grieve, chief investment officer at Slater Asset Management Inc., told Financial Pipeline co-editor Romina Maurino about how these ETFs are put together.
RM: I’m hoping you can tell me a little bit about preferred shares ETFs. I think a lot of people have heard about preferred shares and they know about ETFs, but they haven’t really heard about the mix of the two. So what’s really involved in a preferred share ETF?
DG: The original idea of an ETF, or an exchange traded fund, is to replicate and provide an investor the opportunity to invest in the performance of an index. So like an equity market, an ETF just replicates those equity indices. What’s evolved more recently are niche or boutique type ETFs, more specific oriented. And even to take that a step further, the evolution of an exchanged traded fund that is actually actively managed. So getting away from that index concept and to be more of a pooled fund, a mutual fund, but with the characteristics or the structure of an exchange rated fund.